The Department of Economic Affairs has proposed changes to the rules governing stock exchange brokers. The new proposal states that a broker's investments will not be considered "business" unless they involve client funds, client securities, or create financial liability for the broker.
The current rule that this proposal aims to change says that brokers are prohibited from engaging in any business other than securities or commodity derivatives. The proposed changes primarily address how investments made by brokers are classified.
Brokers are allowed to act as brokers or agents in other sectors, provided they do not incur any personal financial liability. This restriction aimed to keep brokers focused on their core activities and prevent conflicts of interest that might arise from engaging in unrelated business ventures.
Recent judicial interpretations and regulatory circulars have highlighted the need for a review of these provisions. The Madras High Court's 2003 ruling clarified that while brokers are restricted from engaging in non-securities businesses, they can function as brokers or agents in other sectors without personal financial liability.
This update aims to modernise the regulations while maintaining protections for clients.
The concern about the existing rule is that its definition of "business" is overly restrictive and affects brokers' ability to invest. The proposal mentions that there is a lack of clarification on whether investments in group companies or holding significant stakes should be considered business activities.
The DEA has asked the stakeholders to comment on clarifying the definition of "business" in the rules and adding safeguards or limits on investments to maintain market integrity. The department has also asked the stakeholders to offer an opinion and assess if the proposed amendments effectively protect client funds while allowing reasonable business activities.
Stakeholders have been asked to provide feedback by Oct. 10 to help refine these regulatory changes.
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